For many, one of the most stressful elements of being in debt or facing insolvency is harassment from collection agency calls, or creditors threatening to pursue legal action or a wage garnishment against you. When you’re struggling with overwhelming debt, a stay of proceedings could provide you with the relief you need to regain control of your financial situation. But what exactly is a stay of proceedings, and how does it help you during a financial crisis? In this article, we will share how to stop creditors contacting you, and explain ‘what is a stay of proceedings’.
What is a ‘stay of proceedings’?
In Canada, a stay of proceedings is a legal order that temporarily halts any collection actions or legal proceedings against you. In the context of insolvency and bankruptcy, a stay of proceedings is crucial because it protects you from creditor harassment, wage garnishments, and lawsuits while you work on resolving your debt issues. The stay is typically put in place once you file for bankruptcy or a consumer proposal, offering a much-needed break from the stress and pressure of aggressive creditors.
How does a stay of proceedings work?
Once you file for bankruptcy or submit a consumer proposal through a Licensed Insolvency Trustee (LIT), the stay of proceedings automatically goes into effect. It prevents your creditors from taking further actions to collect the money you owe. These actions may include:
- Stopping collection calls: creditors are legally prohibited from contacting you directly or sending collection notices.
- Halt to wage garnishments: if creditors have started garnishing your wages, the stay stops further deductions.
- Suspending lawsuits or court actions: creditors can no longer file lawsuits or take you to court to recover debts.
- Stopping repossessions or foreclosure: if your property is at risk of being repossessed or foreclosed upon, the stay protects you temporarily from losing your assets.
This gives you valuable time to work with a Licensed Insolvency Trustee to determine the best course of action, whether it’s proceeding with bankruptcy or negotiating a consumer proposal with your creditors.
What are the benefits of a stay of proceedings?
The primary benefit of a stay of proceedings is the peace of mind it offers. Without the constant threat of creditor actions, you can focus on addressing your financial challenges and making informed decisions. Other benefits include:
- Protection from creditor harassment: no more dealing with relentless phone calls, emails, or letters from creditors.
- Time to organize your finances: the stay gives you time to meet with a Licensed Insolvency Trustee and explore your debt relief options.
- Preventing further legal complications: by stopping lawsuits and wage garnishments, you avoid escalating financial and legal issues.
What does a stay of proceedings stop?
Whether you are facing threats from a creditor, or you have been sued, filing a bankruptcy or a consumer proposal will guarantee you protection from creditors and collection agency calls. A stay of proceedings will protect you from the following:
- Calls from collection agencies
- Wage garnishments
- Threats of legal action from a creditor
- Any documents filed with the court by a creditor
- Any legal action already underway
- Any judgements you may have received from the court if sued
- Enforcements of Court Order
What can a stay of proceedings not stop?
There are a few exceptions that a stay of proceedings is not able to cover. This includes contact and lawsuits regarding the following:
- Orders to pay child or spousal support
- Debts not included within the Bankruptcy and Insolvency Act
- Fines and penalties
- Support payments
- Fraud debts
- Restitution orders
- Student loan debts (if you left school within the last seven years)
- Car loan debts
When does a stay of proceedings end?
A stay of proceedings lasts throughout the duration of your bankruptcy process or consumer proposal. In the case of bankruptcy, the stay typically remains in place until your discharge is granted, which can take anywhere from 9 months to several years, depending on your circumstances. For a consumer proposal, the stay remains in effect as long as you adhere to the terms of the agreement and make the required payments. Once your consumer proposal has been completed or you have been discharged from bankruptcy, the stay ends. By this time, most of the debt covered by your bankruptcy or proposal will have been cleared, meaning creditors will no longer be seeking repayment. There should be no further reason for them to contact you. In rare cases, however, a creditor may apply to the court to have the stay lifted. If this happens, your trustee will guide you through the process and provide the necessary support. This process allows you the time and protection you need to rebuild your financial life without constant creditor interference.
Can a stay of proceedings stop the CRA?
Yes, a stay of proceedings can stop the Canada Revenue Agency (CRA) from pursuing action against you, including any income tax debt you may owe. When you file for bankruptcy or a consumer proposal, your Licensed Insolvency Trustee will notify the CRA, and they are legally required to cease all collection actions, just like any other creditor. This includes stopping any attempts to contact you, as well as halting wage garnishments or bank account freezes initiated by the CRA. If you’re struggling with tax debt, it’s crucial to take action early by consulting with a Licensed Insolvency Trustee. Acting quickly helps protect you from severe consequences like the CRA placing a lien on your property. Don’t wait until the situation escalates – contact a trustee as soon as possible to take advantage of the protection a stay of proceedings provides.
What happens after the stay of proceedings ends?
Once the stay of proceedings expires, creditors can resume their collection activities unless a resolution has been reached through bankruptcy or a consumer proposal. If your debt has been successfully discharged in bankruptcy or a consumer proposal has been accepted and completed, creditors are no longer able to pursue the debts covered by the process.
Why should you consult a Licensed Insolvency Trustee?
If you’re overwhelmed with debt and considering filing for bankruptcy or a consumer proposal, consulting a Licensed Insolvency Trustee is a critical first step. A LIT can explain how a stay of proceedings can work in your specific situation, protect your interests, and help you make an informed decision about your financial future. At Spergel, we provide personalized support and guidance throughout the process of debt relief. Our experienced trustees will help you understand your rights and options, including how to use the stay of proceedings to protect yourself from further financial distress.
What is a stay of proceedings? FAQs
Here are some of the most commonly asked questions we receive about a stay of proceedings in Canada:
What is the stay of proceedings in the Bankruptcy and Insolvency Act?
A stay of proceedings in the Bankruptcy and Insolvency Act (BIA) is a legal provision that temporarily halts any collection actions or legal proceedings against an individual or business who has filed for bankruptcy or a consumer proposal. Once a bankruptcy or proposal is filed, the Stay prevents creditors from taking further actions like wage garnishments, lawsuits, or collection calls. This protection allows the debtor time to work on resolving their financial issues without the pressure of ongoing creditor actions, offering a crucial safeguard during the debt relief process.
How long does insolvency stay on your record?
In Canada, insolvency can stay on your record for varying lengths of time depending on the type of debt relief you pursue. If you file for bankruptcy, a first-time bankruptcy typically remains on your credit report for up to 6 years from the date of your discharge. For a second or subsequent bankruptcy, it may remain for up to 14 years. If you file a consumer proposal, it stays on your credit report for 3 years after the completion of the proposal, or 6 years from the date of filing, whichever is earlier. These entries can significantly impact your credit score during that time.
How long does insolvency last in Canada?
In Canada, the length of insolvency depends on the type of debt relief you pursue. If you file for bankruptcy, the process typically lasts for a minimum of 9 months for a first-time bankruptcy, but it can take longer if there are complications or if it is a second or subsequent bankruptcy. The process can last up to 21 months for a second bankruptcy, depending on the circumstances. For a consumer proposal, the process lasts for the duration of the repayment plan, which typically ranges from 3 to 5 years. During this time, you make regular payments according to an agreement with your creditors. The insolvency period ends once the bankruptcy is discharged or the consumer proposal is completed, and any remaining debt covered by the process is forgiven.
In need of a stay of proceedings? If you’re suffering with overwhelming debts and are being contacted by creditors, book a free consultation with Spergel. Our experienced Licensed Insolvency Trustees have been helping Canadians become debt free for over thirty years. We can help you take the right course of action to gain debt relief, free from the pressures of creditors.